Silvio Gesell wrote his theory of money and ‘a natural economic order’, from which this story is extracted, in 1890. His views on interest bearing debt at the heart of capitalism's failure have led currency innovators for over 100 years.
Thanks to Prof. Ester Barinaga for pointing it out to me again - It is one of my favorite just-so stories (Along with the 11th Round and The 3 EURO or 300 Shillling Note) that call out the dysfunction of our global economic system in a way we can all understand.
A Story of Robinson Crusoe - by Silvio Gesell 1890
To introduce the theory of interest here expounded, and to facilitate the removal of old prejudices, which are nowhere stronger than in connection with the subject of interest, I shall begin with a story of Robinson Crusoe.
Robinson Crusoe, as is well known, built his house, from motives of health, on the south side of the mountain, whereas his crops grew on the damp but fruitful northern slopes. He was therefore obliged to carry his harvests over the mountain. To eliminate this labor he decided to construct a canal around the mountain. The time required for this enterprise which, to avoid silting, would have to be continued without interruption, he estimated at three years. He had therefore to lay in provisions for three years.
He slaughtered some pigs and cured their flesh with salt; he filled a deep trench with wheat, covering it carefully with earth. He tanned a dozen buckskins for suits and nailed them up in a chest, enclosing also the stink-glands of a skunk as a precaution against moths.
In short, he provided amply and, as he thought, wisely, for the coming three years.
As he sat calculating for the last time whether his "capital" was sufficient for the projected undertaking, he was startled by the approach of a stranger, obviously the survivor of a shipwreck.
" Hallo, Crusoe!" shouted the stranger as he approached, "my ship has gone down, but I like your island and intend to settle here. Will you help me with some provisions until I have brought a field into cultivation and harvested my first crops?"
At these words Crusoe’s thoughts flew from his provisions to the possibility of interest and the attractions of life as a gentleman of independent means. He hastened to answer "yes".
" That’s splendid!" replied the stranger, "but I must say at once that I shall pay no interest. I would prefer to keep myself alive by hunting and fishing, for my religion forbids me to pay, or to receive, interest."
Robinson Crusoe: An admirable religion! But from what motive do you expect me to advance you provisions from my stores if you pay me no interest?
Stranger: From pure egoism, my dear fellow, from your self-interest rightly understood. Because you gain, and gain enormously.
R.C.: That, stranger you have to prove. I confess that I can see no advantage in lending you my provisions free of interest.
S: I shall prove it in black and white, and if you can follow my proof, you will agree to a loan without interest, and thank me into the bargain. I need, first of all, clothes, for, as you can see, I am naked. Have you a supply of clothes?
R.C.: That chest is packed with buckskin suits.
S: My dear Crusoe! I had more respect for your intelligence. Just fancy nailing up clothes for three years in a chest – buckskins, the favorite diet of moths! And buckskins must be kept aired and rubbed with grease, otherwise they become hard and brittle.
R.C.: That is true, but I have no choice in the matter. They would be no safer in my clothes-cupboard – less safe, indeed, for it is infested by rats and mice as well as by moths.
S: The mice will get them in any case. Look how they have already started to gnaw their way in!
R.C.: Confound the brutes! I am helpless against them.
S: What! A human being helpless against mice! I will show you how to protect yourself against rats and mice and moths, against thieves and brittleness, dust and mildew. Lend me these clothes for one, two or three years and I agree to make you new clothes as soon as you require them. You will receive as many suits as you have lent me, and the new suits will be far superior to those you would have taken from this chest. Nor will you regret the absence of the particular perfume you have employed! Do you agree?
R.C.: Yes, stranger, I agree to lend you the chest of clothes; I see that, in this case, the loan, even without interest, is to my advantage.
S: Now show me your wheat; I need some for bread and seed,
R.C.: It is buried in this mound.
S: Wheat buried for three years! What about mildew and beetles?
R.C.: I have thought of them and considered every other possibility, but this is the best I can do.
S: Just bend down a moment. Observe this beetle crawling on the surface of the mound. Note the garbage and the spreading patch of mildew. It is high time to take out and air the wheat.
R.C.: This capital will be my ruin! If I only could find some method of protecting myself against the thousand destructive forces of nature!
S: Let me tell you, Crusoe, how we manage at home. We build a dry and airy shed and shake out the wheat on the boarded floor. Every three weeks the whole mass is turned over with wooden shovels. We also keep a number of cats; we set mouse-traps and insure against fire. In this way we keep the annual depreciation down to 10 per cent.
R.C.: But the labor and expense!
S: Exactly You shrink from the labor and expense. In that case you have another course. Lend me your wheat and I shall replace it, pound for pound, sack for sack, with fresh wheat from my harvest. You thus save the labor of building a shed and turning over the wheat; you need feed no cats, you avoid the loss of weight, and instead of mouldy rubbish you will have fresh, nutritious wheat.
R.C.: With all my heart I accept your proposal.
S: That is, you will lend me your wheat free of interest?
R.C.: Certainly; without interest and with my best thanks.
S: But I can only use part of the wheat, I do not need it all.
R.C.:Suppose I give you the whole store with the understanding that for every ten sacks lent you give me back nine sacks?
S: I must decline your offer, for it would mean interest – not indeed positive, but negative interest. The receiver, not the giver of the loan, would be a capitalist, and my religion does not permit usury; even negative interest is forbidden. I propose therefore the following agreement. Entrust me with the supervision of your wheat, the construction of the shed, and whatever else is necessary. In return you can pay me, annually, from every ten sacks two sacks as wages.
R.C.: It makes no difference to me whether your service comes under the heading of usury or of labor. The agreement is, then, that I give you ten sacks and that you give me back eight sacks?
S: But I need other articles, a plough, a cart and tools. Do you consent to lend them, also, without interest? I promise to return everything in perfect order, a new spade for a new spade, a new, unrusted, chain for a new chain, and so forth.
R.C.: Of course I consent. All I have at present from my stores is work. Lately the river overflowed and flooded the shed, covering everything with mud. Then a storm blew off the roof and everything was damaged by rain. Now we have drought, and the wind is blowing in sand and dust. Rust, decay, breakage, drought, light, darkness, dry-rot, ants, keep up a never-ending attack. We can congratulate ourselves here upon having , at least, no thieves and incendiaries. I am delighted that, by means of a loan, I can now store my belongings without expense, labor, loss or vexation, until I need them later.
S: That is, you now see the advantage you gain by lending me your provisions free of interest?
R.C.: Of course I do. But the question now occurs to me, why do similar stores of provisions at home bring their possessors interest?
S: The explanation lies in money which is there the medium of such transactions.
R.C.: What? The cause of interest lies in money? That is impossible, for listen to what Marx says of money and interest: " Work is the source of interest (surplus-value). Interest, which converts money into capital, cannot be derived from money. If it is true that money is a medium of exchange, then its function is merely to pay the price of the goods which it purchases. If it thus remains unchanged it cannot increase in value. Surplus value (interest) must therefore be derived from the goods purchased which are sold at an increase of price. This change can neither occur at the time of purchase not at the time of sale, for on these occasions equivalents are exchanged. The only remaining hypothesis is, therefore, that the change happens through the use of the goods after their purchase and before their sale." (Marx. Capital, chap. VI).
S: How long have you been on this island?
R.C.: Thirty years.
S: I thought so! You still appeal to the theory of value. My dear Sir, that theory is dead and buried. At the present day it has no representatives.
R.C.: What? You assert that Marx’s theory of interest is dead and buried? Even if no one else represents it – I represent it!
S: Well then, represent it not only in theory but also in practice – if you wish, in relation to me! I hereby break off the bargain we have just made. From their nature and destination your goods are the purest form of what is usually called capital. I challenge you to take up the position of a capitalist towards me. I need your stuff. No worker ever appeared before a capitalist as naked as I stand before you. Never has there been so clear an illustration of the relation between the owner of capital and the individual in need of capital. And now make the attempt to exact interest! Shall we begin our bargaining again from the beginning?
R.C.: Surrender! Rats, moths and rust have broken my power as a capitalist. But tell me, what is your explanation of interest?
S: The explanation is simple enough. If there were a monetary system on this island and I , as a shipwrecked traveller, needed a loan, I would have to apply to a money –lender for money to buy things which you have just lent me without interest. But a money-lender has not to worry about rats, moths, rust and roof-repairing, so I could not have taken up the position towards him that I have taken up towards you. The loss inseparable from the ownership of goods (there is the dog running off with one of your – or rather – my buckskins!) is borne, not by moneylenders, but by those who have to store the goods. The money-lender is free from such cares and is unmoved by the ingenious arguments which found the joints in your armour. You did not nail up your chest of buckskins when I refused to pay interest; the nature of your capital made you willing to continue the negotiations. Not so the money-capitalist; he would bang the door of his strong-room before my face if I announced that I would pay no interest. Yet I do not need the money itself, I only need money to buy buckskins. The buckskins you give me without interest: but upon the money to buy buckskins I must pay interest!
R.C.: Then the cause of interest is to be sought in money? And Marx is wrong?
S: Of course Marx is wrong. He under-estimated the importance of money, the nervous system of economic life, so it is not surprising that he went wrong over other things of fundamental importance. Like all his disciples he made the mistake of excluding money form the scope of his inquiry. He was fascinated by the shining metal disks, otherwise he could never have used the following words: "Gold and silver are not by nature money, but money is by nature gold and silver, witness the coincidence of their natural properties with its functions".
R.C.: Practice certainly does not agree with Marx’s theory – that has been clearly proved by our negotiations. Money is for Marx only a medium of exchange; but money does more, it seems, than "merely pay the price of the goods it purchases". When the borrower refuses to pay interest, the banker can bang the door of his safe without experiencing any of the cares which beset the owner of goods (capital) – that is the root of the matter.
S: Rats, moths and rust are powerful logicians! A single hour of economic practice has taught you more than years of study in the text-books.
As an aside here - we don't currently employ a 'devaluing' currency in our Community Currencies - but rather we pull from it into a community fund that is redistributed as a basic income. We call this demurrage with is essentially a tax on hoarding and a convenient source of a universal basic income.